Apple Inc. stock sank on Thursday as data about the firm’s next iPhone release was leaked by a well known analyst. The iPhone 6c is going to be the next Apple smartphone, but it’s not going to replace the iPhone 6S or the iPhone 6S Plus. Instead the device is going to be a cheap phone for those not willing to splash out on Apple’s more expensive products.
The fall in the value of Apple stock on Thursday’s market isn’t likely due to the release of the iPhone specs from the supply chain. At time of writing the S&P 500 was down 1.43 percent, roughly in line with the fall in the value of Apple. That doesn’t mean, however, that the device won’t have any effect on Apple stock at all. History, in this case fairly brief, shows that Wall Street worries when Apple changes things up too much.
iPhone 6c specs leaked
Today’s leak came from Ming Chi Kuo, a veteran Apple analyst with KGI Securities. Mr. Kuo is known for being very accurate in his reports about future Apple products. His sources seem to include people with direct knowledge of the firm’s supply chain, and he may even have ears for one or two people inside Apple itself.
Mr. Kuo says that the iPhone 6c will look and feel like the iPhone 5S. It’s going to have a metal casing, and it’s going to sport the A9 chip found in the iPhone 6. It will also have an NFC chip to support Apple Pay, and include the same camera found in the iPhone 5S.
The KGI report added that the iPhone 6c is expected to be available in two or three colors and should be priced between $400 and $500. The device will be launched in the first quarter of next year if Mr. Kuo is right.
Judging Apple’s prospects
It seems clear from Mr. Kuo’s report that the 4 inch smartphone that Apple will release next year won’t be the high-powered device that some were looking for. Instead Apple will position it as an entry level smartphone that will serve to get those with lower incomes into the iOS ecosystem. That could be bad news for Apple Inc. stock.
While many on Wall Street are worried that Apple will see a slow down in total iPhone sales in the years to come, Tim Cook has given them one thing to hold onto. Margins at Apple are still high, and they seem to be staying that way. When the iPhone 5c was announced it caused a slew of worries about that particular number. The same wave may come over traders as we head into the release of the iPhone 6C.
At the time of the iPhone 5c launch there was quite a reaction on Wall Street. Sanford C. Bernstein released a report that said the firm’s lack of a “low-priced offering for emerging markets nearly ensures that the company will continue to be an overall share loser in the smartphone market until it chooses to address the low end.”
Tim Arcuri of Cowen & Co wasn’t that harsh, but he did call the iPhone 5c “nobody’s low-margin phone.” This time around it’s not likely that Wall Street will be surprised by the price of the next iPhone. When the iPhone 5c was launched many were looking for it to cost $200-$300 in order to appeal to the masses and compete with Samsung’s market growth.
Two years later Samsung is in big trouble because its phones just don’t make enough of a profit, while Apple, with no low priced phone in its portfolio, is capturing more that 90 percent of the entire market surplus.
Mr. Kuo, in today’s report, said that sales of the iPhone 6C will only amount to 8-9 percent of Apple iPhone sales next year, meaning that the effect on margins wouldn’t be all that dramatic. It’s not clear whether Wall Street has learned its lesson from the release of the iPhone 5C, but Apple stock is vulnerable right now, and that might cause a lot of volatility around the release of the firm’s new iPhone.
Apple (AAPL) stock stays depressed
Wall Street appears to be worried about the future of Apple Inc. stock in general, and it may only take a minor catalyst to hurt the firm. Over the last twelve months shares in the Cupertino firm have lost about 1 percent of their value. The last year has, however, represented a huge growth cycle for the firm, and Apple stock underwent a huge boom and bust in the midst of its level performance.
In the early part of the year as news about sales of the iPhone 6 emerged for the first time, Apple stock briefly flirted with a 15 percent gain. The firm’s shares have fallen from an all time high of $134.54 to today’s $114.44.
It’s not clear what the effect of the iPhone 6c will be on Apple stock, but those betting on growth at the firm certainly have a lot to be nervous about. Though it has huge downside protection in the form of a massive cash pile and a huge capital return program, the market still doesn’t quite support Apple.
Wall Street research houses are overwhelmingly positive on the firm’s stock, however. The have a median price target of $150 on the firm’s shares, and more than one analyst is looking for Apple stock to hit close to $200 in the next twelve months.
Back in 2013 when the iPhone 5c was released, Wall Street was broadly against the product. It remains to be seen how those research houses respond to the launch of the iPhone 6c next year, but flighty traders may make Apple stock more vulnerable as they form those opinions.
It’s clear that actual traders aren’t following along with the reasoning of the analysts, however, and that means that the release of the iPhone 6c may bring with it a lot of volatile trading. That’s exactly what happened when Apple first put the iPhone 5c on the market. Traders reacted badly then, to start with at least, despite Apple’s history and reputation. The same drama may be played out all over again in the coming months.